Are financial advisors more focused on planning for older generations?
Financial advisors seem more focused on planning for the older generation. Why do you think that’s the case?
The short answer is yes. A lot of the planning industry has essentially written off the idea of working with younger generations like millennials for various reasons. And frankly, that’s partially because the average age of advisors is 51. Many of them have built great businesses over decades, so they’re inclined to maintain the status quo in working with older generations of clients. Meanwhile, the world has changed around them. In the past, it was difficult to amass significant wealth until the later years of a long career of climbing the corporate ladder. Today, younger people are much more entrepreneurial and may sell businesses for millions before hitting their 30th birthday. They also have totally different priorities. They’re not necessarily buying houses early in life, or staying in one job forever, or focusing on trying to retire at some specific age.
As a result, we believe millennials will define what the planning industry looks like in the next 5 to 10 years. Businesses that don’t adapt will struggle to survive. Whether we like it or not, millennial preferences should begin to dictate how we provide financial planning services in the future. In particular, we think planning will look far more personal than ever before because young people seek happiness in life beyond the numbers. Planning can no longer just be about the bottom line, but about how a client’s money ties in with all other aspects of life. (For more, see “Investment Planning for the Millennial Market Disruption.”)
Advisors also face the challenge of healing self-inflicted reputation wounds. Many young people view advisors as the old suits that don’t necessarily have a client’s best interests at heart. Millennials witnessed one of the greatest financial collapses in our history right as they entered the workforce, many with massive student loan debt. Some of them watched parents lose their homes while the government bailed out the big banks. As advisors, we need to start reaching out our hand and projecting a voice in the marketplace that speaks to their needs and values. We need to actually define what we do. We need to be more transparent than ever. We need to offer simplified technology solutions and a better client experience. And we need to act as empathetic educators, which we think builds the kind of trust younger generations demand.
Financial advisors use a number of factors when they develop a marketing plan. One, obviously, is compensation. Older people, in the pre-retirement and retirement stages of life, tend to have more money to spend on financial products and services. For example, from my point of view as a life insurance broker, I make more money in commission selling a $1 million policy to a sixty-year-old, than to a 30-year-old, all other things being equal. This is due to the fact that life insurance for an older person costs more than for a younger person.
Related to this is, of course, financial need. Older people tend to have a more complicated financial portfolio. There are insurance products, investments, business interests, etc. A financial advisor has the opportunity to utilize more sophisticated strategies and tactics for this type of client. It's more of a challenge. And again, the greater the demand for services, the more they have to pay.
At the same time, advisors can't only focus on the short term. You need to build a clientele that can sustain your firm over the long term. If you can acquire a 30-year-old person as a client now, that person can stay with you for decades, and continually make use of your services. So it makes sense to organize your business so you can cost-effectively cater to younger people with simpler needs and less money to spend.
For me, a big factor is belief in the product. I think everybody deserves a decent burial, and every family and business deserves financial sustenance. Life insurance does this. And I understand that a family can tragically lose a loved one at any time, and at any stage of life; and that a business can lose an owner or key person at any time as well. This is why I will sell a policy to anyone, regardless of age or station in life. The product just does so much good.
Primarily because of how financial advisors are compensated. It has nothing to do with age, but how much money you've accumulated. The majority of those who have accumulated a lot of money are just older. Advisors are primarily compensated in one of two ways:
1) Commissions- they sell you a financial product and earn an up front fee, it could be anywhere from 3% - 10% or higher. This commission is shaved off your initial investment.
2) Assets Under Management (AUM) Fees- this is where you pay a financial advisor to manage your investments and he takes an annual percentage based on the value of your investments. So if the advisor charges 1% and you have $1,000,000, he will make $10,000 per year.
If you're younger and looking to work with a financial advisor, do a search on xyplanningnetwork.com. These advisors focus on generation x and y and usually charge a flat monthly fee for their services regardless of the assets you have accumulated.
Financial Planners and other advisors are captured by their business model. In order to be paid well for their services, they seek out complex planning situations or engage with high net worth clients. Investors with complex financial situations generally find themselves in need of help because of conflicts among various sources of income or wealth acquired through a windfall or inheritance. Multiple streams of income take time to build. Wealth accumulation generally occurs over a lifetime. High net worth clients are more likely to have become wealthy gradually by working and saving than they are to have gotten wealthy in their youth or suddenly.
Statistically, the average American will experience their peak earnings in the year they turn 49. The correlation between age and wealth steers most advisors to an older client simply because the rule of large numbers means that there are more potential clients among the senior population than there are among those under 50.
Two reasons. One is that clients don't make hiring a financial advisor a priority when they are in their 20s, or saving on their own for that matter, when this would be the ideal time to start saving and take advantage of the long time horizon they have for the returns in their portfolios to compound.
The other reason is from the advisor perspective. If charging 1% of the AUM, the more money the clients have, the higher the advisor's fee.
But advisors don't focus on certain age necessarily, some young clients inheriting large sums of money could be ideal candidates for most advisors. What most advisors have though is a minimum amount a client can invest with them, which would keep the majority of young crowd away from them.
But there are advisors who have no minimum, typically young ones at the beginning of their career, who can be a better match for you.
Check the CFP website below for a planner in your area and narrow it down for the ones with Minimum Investable Assets, $0.
Best of luck!
Alina Parizianu, MBA, CFP®